The long time senator's outspoken support for the US administration's war in Iraq became the dominant issue in Connecticut's Democratic primary election, which chooses a party's nominee for the November general election.
Mr Lieberman - Al Gore's running mate in the 2000 presidential election - was challenged and lost his Senate seat to businessman Ned Lamont.
Although a stalwart Democrat, Mr Lieberman has sided with the Republican administration as a strong supporter of the war, a stance deeply unpopular with Connecticut's liberal voters.
But he vowed that he would fight to hold onto his job, announcing, as he conceded the election that he would run as an independent in November.
"The old politics of partisan polarisation won today, for the sake of our state, our country and my party, I cannot and will not let that result stand."
The victorious Mr Lamont vowed to hold the administration's feet to the fire on Iraq and US national security issues.
"I think the issues were on our side. People fundamentally want a change in Washington," he said.
"The people in Connecticut think that staying the course is not a winning strategy in Iraq. They want to start bringing our troops home. They want to start investing that money back in the United States of America,"
Mr Lieberman claims to have been "scapegoated" by fellow Democratic lawmakers and influential opinion makers.
"This primary would never have happened absent Iraq," The New York Times wrote last week, as it endorsed Mr Lamont in a scathing rebuke of Senator Lieberman.
"He has become one of the Bush administrations most useful allies, as the president tries to turn the war on terror into an excuse for radical changes in how this country operates," they wrote, calling Mr Lieberman the Republican party's "enabler" and Bush's "defender."
Democratic Party elders were bracing for a political earthquake with the incumbent's defeat, with some back-pedalling on their earlier support of the war lest they, too, run afoul of voters.